Exxon Finds Support From Some Sections of Iraqi Government Despite Threats

Iraq’s Deputy Prime Minister for Economic Affairs Rosh Shaways came to the support of major oil companies like Exxon Mobil (NYSE:XOM), which are looking to begin exploration in the semi-autonomous Kurdish region of the country despite hostile reactions from the national government. [1] Exxon Mobil signed a contract with the Kurdish Regional Government (KRG) to begin exploration in the northern regions of the country towards the end of 2011, neglecting the central government’s stand that such contracts made with regional administrations were illegal. It is rumored that the KRG is also pursuing talks with other majors such as Chevron (NYSE:CVX) for similar exploration agreements.

Exxon’s move to sign contracts with the KRG has resulted in a severe backlash from Iraqi Deputy Prime Minister for Energy Hussain al-Shahristani, who has suggested that the company might be barred from competing for new contracts in the country unless it rescinds the Kurdish contracts. [1] Desperate to attract foreign players, the KRG is offering lucrative production sharing agreements to major oil players in comparison to service contracts offered by the Iraq Government on its massive south fields. Exxon has refused to comment on the matter to date. Shahristani had earlier threatened to cancel Exxon’s contract to work on the massive West Qurna field after the Kurdish deal was announced.

Support from the minister of Economic Affairs could come as a relief for Exxon as it looks to continue business with both the central government as well as the KRG. Mr. Rosh Shaways asked government officials to refrain from threatening oil companies as it would dampen the investment scenario in the country. Iraq is looking to attract hundreds of billions of dollars of investments over the next few years to ramp up oil production to the target of 12 million barrels/ day by 2017. Infrastructure bottlenecks and the delicate political climate of the country make the target look overly optimistic to analysts. The oil industry in the country has suffered from years of sanctions and war. Exxon’s role in Iraq’s push to boost oil output will help the company increase its global output.

Rights on the country’s considerable oil resources have been a contentious issue among the governments. KRG reaffirms its rights on oil resources held in its territories while the central government disputes these claims.

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